Chart of the day: How Warren Buffett beat the S&P 500 last year
Warren Buffett’s investment vehicle, Berkshire Hathaway, performed more than twice as well as America’s S&P 500 index last year. Mischa Frankl-Duval explains how.
What happened?
Berkshire Hathaway (BRK/A:US)
Chart source: Quartz
How did Buffett do it?
"Not too long ago, Berkshire was seen as a way to buy into the billionaire's skill picking stocks", said Bloomberg. "These days, it's primarily a bet on his ability to make acquisitions and distribute funds among the dozens of businesses he bought over the past five decades."
These hard assets really worked for Buffett in 2014. Profit from the BNSF railroad rose about 5 percent to $1.035bn, while Berkshire Hathaway's holdings in utilities and energy, saw profits rise from $472 m to $697m.
"There are some line items in here that just scream operating success," said Bill Smead, chief investment officer of Smead Capital Management in Seattle.
Buffett's successful investment in large cap companies meant major mistakes among them a $678m loss on Tesco (down 43.47% in 2014) and a pounding for IBM (down 14%) didn't dent performance. Some of Buffett's equity holdings performed phenomenally. Wells Fargo Berkshire Hathaway's largest holding rose 21% last year. Gains on successful equities and hard investments were enough to absorb losses elsewhere.
Chart source: Quartz
What next for Berkshire Hathaway?
The company's move towards company acquisition is designed in large part to bulletproof its performance in a post-Buffett world. Berkshire Hathaway's enormous cash reserves currently over $63.2bn have encouraged investors, who believe the company will continue to buy hard assets in 2015.
"It would come as no surprise to see some kind of significant acquisition or investment in the near future", said Nasdaq.
"The question is: Where?"